UK inflation jumped to an 11-year high of 3% in December, raising the prospect of more interest rate increases.

Official figures showed that higher fuel costs helped to push the Consumer Prices Index up from 2.7% in November.

An increase had been expected following last week's shock rise in UK interest rates to 5.25%, but the rise was larger than analysts had forecast.

Prime Minister Tony Blair said higher oil prices had driven inflation, and forecast CPI would fall to 2% in 2007.

"The underlying position of the British economy, even with the recent interest rate rise, is one of strong economic growth, historically very low interest rates, inflation under control and employment and living standards high," Mr Blair said at his monthly press conference.

The Retail Prices Index, which includes mortgage interest payments, rose to 4.4% in December from 3.9%.

The RPI figure - which is often used as a basis for wage demands - is now at its highest level since 1991.

The Bank of England is tasked with keeping CPI inflation at the government's target rate of 2%, but it has now exceeded this level for eight months in a row.

If CPI inflation should rise above 3%, the Bank's governor Mervyn King would have to write a letter of explanation to the government - the first time since the Bank gained independence in 1997.

"Given that the CPI is generally a lagging indicator, we can expect inflation in the UK to climb further in the short term, taking us well above the Bank's 2% target," said Martin Slaney, of GFT Global Markets.

"Although Bank of England governor Mervyn King will not be obliged to write that `Dear Chancellor' letter just yet, his pen will be poised."